MEDIA ECONOMICS
Daria Kuchařová
Culture and Mass Media Economy 1
Content
I. Media economics
II. Broadcasting
 Television
III. Publishing
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MEDIA ECONOMICS
Culture and Mass Media Economy 3
Mass media
 What is mass media?
 What mass media goods and services you
know?
◦ Group discussion
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Mass media
 Broadcast (radio, television)
 Print media (newspapers, magazines,
books, etc.)
 Recorded music
 Cinema, films
 Digital media (Internet)
 Outdoor media (billboards)
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Mass media
 Diversified media technologies that are
intended to reach a large audience by
mass communication
(http://www.sciencedaily.com/articles/m/mass_media.htm)
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Media Economics
 What is media economics?
◦ Group discussion
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Media Economics
 Explores the specific application of
economics laws and theories to media
industries and firms,
 Shows:
 how economic, regulatory and financial
pressures direct and constrain activities of
media industries and firms,
 and their influences on the dynamics of
media markets.
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Media Economics
 The ways, how media behave and operate,
 How economic and financial pressures
affect:
◦ The kinds of media available in society,
◦ Content of the media,
◦ Culture, politics and society as a whole.
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Traditions in media economics
 Theoretical tradition
 Applied tradition
 Critical tradition
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Theoretical tradition
 Basis – neoclassical economy
 Tries to explain:
◦ Choices and decisions and other economics
factors affecting producers and consumers of
communications goods and services,
◦ Forces that constrain and compel actions in
media markets
 Result:
◦ Support forecasts, explore optimal choices for
firms and optimal policy options
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Applied tradition
 Basis – business economics and
management
 Explores:
◦ The structure of communication industries
and markets, with an emphasis on
understanding trends and changes
◦ Consumer and advertising behavior
 Result:
◦ Help to develop strategies for government
and firms
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Critical tradition
 Basis – political economics and social
sciences
 Concerned with:
◦ Issues of welfare economics
◦ Cultural and social orientation in media
◦ Issues in media markets (monopoly, cultural
effects, etc.)
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Media
 Media – economic entities which work
within economic context to produce and
sell media content to consumers
◦ Operate with a variety of business models
and value-creation processes and in a wide
variety of settings
◦ Sold vs. Free
◦ Financed via advertising (none, some or all
income), state and private subsidy
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Media economy
 Recent changes
◦ Changing markets (beyond national borders)
◦ New technologies
◦ Intensification of competition
 Thus:
 The need to understand media
economics is growing rapidly.
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BROADCASTING
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Broadcasting
 A diverse range of radio and television
services for entertainment, educational
and informational purposes.
 Includes:
◦ programme production,
◦ programe selection for networks and local
stations,
◦ programme delivery,
◦ funding of this whole process.
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Broadcasting
 A key sector in modern society, not only
economically but, more than most
industries, culturally, socially and politically.
 Is subjected to government regulation
more than other cultural sectors
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Broadcast financing
 Advertiser payments
◦ Programmes sold for free to audience.
◦ Audience is sold to advertisers.
◦ Payment depends on the extent costs are
passed on in product prices
 Audience payment
◦ Direct payment, determined by willingness to
pay
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Broadcast financing (cont.)
 Government or community subsidy
◦ Donations from community members
◦ Government subsidies based on taxation
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Broadcast regulation
 Should broadcast be regulated?
 Arguments for and against.
◦ Group discussion
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Broadcast regulation
 Broadcast market with:
◦ Limited supply (frequency spectrum),
◦ Unpriced product,
◦ Demand derived from advertisements,
◦ Economics of scale and scope,
◦ Output that is persuasive and penetrating.
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Broadcast regulation. Market failures
 Programme diversity / Tendency to
homogeneity
◦ Competition, funding from advertiser ->
reduce programme diversity and neglect
minority tastes, duplicating popular
programmes
 Monopolistic market
 Asymmetric information (advertising)
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Broadcast regulation. Market failures
 Social and political effects
 Externality
 Merit good
 E.g. programme with explicit violence
◦ Induces (influence) actual violence from some
viewers (externality)
◦ Immoral even if not affecting people’s
behavior (merit good)
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Broadcast regulation. Policy
 Objectives:
◦ Reduce signal interference,
◦ Increase programme diversity,
◦ Prevent private monopolies,
◦ Enhance desirable social and political context.
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Broadcast regulation. Policy
 Instruments:
 Control of access and introduction of
new technology in broadcasting,
 Fiscal subsidy,
 Regulation of ownership,
 Regulation of programme content.
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Broadcast regulation. Policy
 Licensing (to reduce signal interference)
◦ Issue licenses to broadcasters via qualitative
competition, financial tender or lottery
 Public broadcasting (diversity of
programmes, social and political
concerns)
◦ ‘Principal-agent problem’ people are unable to
transmit preferences easily to public
broadcaster
◦ Political interference
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BROADCASTING.
TELEVISION
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Television
 has become a commercial mass medium
by the 1950s, competing for audiences
with radio and other media.
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Television. Specific features
 Non-exhaustibility
◦ Programme content can be used repeatedly
without additional cost
◦ With few incremental costs content can be
translated into other languages and reach
wider audience
◦ Low cost of distribution
 Non-excludability
◦ Free-rider problem
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Television. Specific features (cont.)
 Non-exhaustibility & Non-excludability
result in protection of intellectual
property becoming relevant issue
 Solution: content protected by copyright
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Television. Specific features (cont.)
 Word of mouth promoting programmes
◦ Used as marketing tool (stimulating favourable
reports)
 Programme consumption is a personal
and social phenomenon
◦ Discussion of content is a part of viewer’s
satisfaction
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Television. Funding
 Advertisers
 Tax payers (government subsidies)
 Viewers (fees)
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Television
 Government regulation:
◦ Licensing
◦ Public broadcasting
 Problem political influence:
◦ License for set period, apply for license
renewal
◦ Influencing public broadcasters through
funding
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PUBLISHING
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Publishing
 Basic functions of publishing company:
◦ Acquisition of manuscripts,
◦ Editing and layout,
◦ Printing (may be outsourced),
◦ Sales.
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Manuscripts
 Solicited – offer from publishing company,
non-fiction.
 Unsolicited – publishing company receives and
reviews manuscripts (on an exclusive basis).
◦ Review = artistic content + possibilities of
commercial success
◦ Type I and type II errors
◦ Constant stock of unpublished manuscripts
◦ Rejection = costs for publishing company
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Manuscripts
 Bargaining btw author and publishing
company:
◦ Costs and risks
◦ Revenue
 Young authors – may pay for publishing
 Well-known authors – may get advance and
royalty on each copy sold
 Library system – decrease revenue
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Publishing market
 Monopoly on book (copyright) + direct
competition with other books =
Monopolistic competition
 Book – new commodity
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Publishing market
 Monopoly: MC=MR
 Publishing: decision publish/not publish
◦ Fixed cost are crucial (though falling) -> high risk
◦ Many direct competitors
◦ Strength of demand is more important than elasticity
 Result:
◦ Many books published at a loss
◦ Sometimes publish at loss to promote themselves as
guardians of literature (cross-subsidy minority
literature)
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Publishing market. Books features
 Experience good – don’t know the quality
before you read a book
 Horizontal quality – not better/worse than
other book, but like it more/less than other
book
 Enormous supply -> information problem:
◦ Reviews – high impact, used as marketing tool
◦ Dependent preferences due to interaction
btw readers (a ‘must’ to read a book
Culture and Mass Media Economy 41
Sources
 A handbook of cultural economics. Edited by Ruth Towse. Cheltenham:
Edward Elgar, 2003.
 Mass media. Science daily
http://www.sciencedaily.com/articles/m/mass_media.htm
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THANKYOU FOR
ATTENTION!
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